HMRC has announced that from 1 April 2010 it will be treating payments made by cheque for VAT as received on the date cleared funds reach its bank account.

This is a significant change and one of which businesses need to take account. From 1 April 2010 if you send in your VAT return and payment to arrive by the due date the payment will be late because it will clear on a date after receipt. This will leave your business liable to a late payment penalty. Currently late payment surcharges are on a sliding scale from 2% to 15% – be late paying at your peril.

After 1 April 2010 you will need to make sure you send your payment to HMRC so that they have sufficient time to present the cheque and for the funds to clear by the due date. This is effectively reducing the time available for preparing and submitting VAT returns and payments by as much as seven days.

Submit and pay electronically

Comment

This change by HMRC is probably to help cash flow and generate additional revenue from increased penalties. HMRC still require businesses using the, for example, Cash Accounting Scheme or the cash basis of the Flat Rate Scheme for Small Businesses to account for VAT on cheques on the day they are received.

This appears to be yet another attempt by HMRC to put more businesses into the penalty régime by moving the goal posts, whilst requiring the businesses to account for VAT on a less beneficial, for the business, way.

What are your views? Leave a comment below.

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Chris Lodge, the manager of Kaslers’ road traffic accident department explains how new rules will affect simple injury claims from next year.

Getting it Right

A brand new streamlined process for dealing with

Road Traffic Accident injury claims.

After being injured in a road accident, the last thing anybody needs is long drawn out legal process.  Fortunately, in the very near future, the waiting time for most of these cases is going to be dramatically shortened – if the lawmakers have finally got it right.

With effect from April 6^th 2010, a completely new process for road accident injury claims becomes compulsory and where the insurer of the driver responsible for the accident admits liability immediately, the claim should normally be finalised in a matter of a few months.

Here’s how it works

Stage one

First, the injured person’s lawyer will have to email a very detailed Claim Notification Form to the insurers via a central website operated by the Ministry of Justice.

Once they have received the form, the insurers have only fifteen business days to state whether or not they accept liability.  If they do AND comply with certain other time limits, the claim will be dealt with under the new procedure.  The insurers will benefit because the legal costs they have to pay will be much reduced and the injured person will benefit from a far simpler and faster process.

Stage Two

If the injured person owns the car driven in the accident, then his or her lawyer will probably arrange for either the repairs, or an inspection and valuation if the vehicle is a write-off.  As far as injuries are concerned, the lawyer will arrange to have the person assessed for treatment and an examination by an independent medical practitioner who will prepare a medical report in the format required by the new process.  This will cover the extent of the injuries and their likely ongoing effects on such things as the ability to work and go about normal daily activities.

This medico-legal report, together with further details of the claim, must be emailed to the other driver’s insurers within fifteen business days of it being approved by the injured person.

The Final Settlement Pack

When the claim is ready to be settled, the lawyer must discuss and agree with the client the amount of compensation to be sought.  Clearly, this must be a realistic figure based on the lawyer’s expertise in personal injury work.  The compensation claim, together with a list of the injured person’s out of pocket expenses, will then be submitted electronically through the central website to the other driver’s insurers in the form of a Settlement Pack

The insurers then have a further fifteen business days either to agree the amount sought or make a counter offer. After that a further twenty business days are allowed to enable negotiations to continue.

The Interim Settlement Pack

If the medical report indicates that further medical evidence may be needed at a later date before the claim should be settled,  the injured person’s lawyer should ask for a payment on account of the claim of £1000.00, which cannot be refused.  (They can seek more than this where valid reasons are provided).  The claims process is then put on hold until they can produce the final medical evidence at which point the Final Settlement process is followed.

What happens if the claim leaves the process?

If the insurers do not accept liability; do not comply with the time limits described above; deny that the symptoms referred to in the medical report were caused by the accident; or if they allege fraud, the claim leaves the new process and the matter is then handled by the current more lengthy and expensive process.

Generally, it will not be in the interest of insurers to allow the claim to leave the new process as the legal costs they will have to pay, if the claim succeeds, will be far greater.

What happens if the value of the claim cannot be agreed?

Stage 3

If no agreement about the value of the claim has been reached after the period allowed for negotiations has expired, it remains in the process, but the insurers must pay the value of their last offer and Court proceedings are then issued.   These can take the form of an oral hearing, or (if both sides agree) by means of detailed written statements sent to the court so that the District Judge can value the claim.

Whilst the District Judge at the Court will be aware that settlement offers have been made by both sides, the amount of the final offers will be kept in a sealed envelope until after the amount to be awarded has been decided.

Getting it right here is very important because if the District Judge awards more than the insurer’s highest offer, the insurer must pay both side’s legal fees of the Stage 3 process, plus the court fees.  However, if the amount awarded is less than that offered by the insurers in Stage 2, the injured person will be liable for the costs of both sides of the Stage 3 process.  Plainly, it is essential that the injured person’s lawyer has ensured that they have adequate legal expenses insurance (legal protection) to cover them in case this happens and that the legal expenses insurers have agreed with the lawyer’s recommendation that the claim proceeds into Stage 3.

Getting the right advice

A single word of warning.  Generally the new process will be far better for accident victims than the current one as both sides are both obliged and incentivised to proceed very quickly.  However there is the risk that, because the legal fees will be so much lower, shortcuts may be taken by legal representatives.  Their clients may even advised to accept offers well below the true value because lawyers will receive no additional payment for the extra work put in, or the additional time necessary to pursue claims through to their proper conclusions.

For more information, see the official website.

Chris Lodge has specialised as a Road Traffic Accident Solicitor for over 25 years and sits as a representative for the Motor Accident Solicitors Society on a Ministry of Justice working party testing and piloting the electronic notification form described above.

Got any questions or comments? I’d love to read them – use the comments section below.

No related posts.

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For small businesses the Flat Rate Scheme (FRS) can be very useful as it simplifies the preparation of a business’s VAT return. Before you rush off to sign up for the FRS you should take a few moments to consider whether using the FRS will benefit your business. This scheme probably isn’t beneficial for businesses that apply the zero or reduced rate to most of their supplies.

How it works – in simple terms

You continue to raise invoices as normal, applying VAT at the appropriate rate. When you come to the end of the VAT period you use the total amount invoiced, i.e. the value plus the VAT, to work out how much VAT you owe to HMRC. You take this figure and apply the flat rate for your business. The answer is the amount of VAT you have to pay to HMRC.

What you don’t do is claim any VAT on general expenses as the flat rate has been set to take account of this. Where you make a major purchase you may be able to recover the VAT on the cost in addition to using the flat rate scheme. This only applies to capital items of more than £2,000.

Who cannot use the flat rate scheme?

The scheme cannot be used by businesses using:

• the Cash Accounting scheme – the FRS has its own cash accounting method.
• Retail schemes – the FRS has its own retail method.
• a margin scheme for second hand goods.

There are other reasons why a business might be excluded from the scheme. These are full details of these in HMRC’s guidance in Notice 733: Flat Rate Scheme for small businesses

Businesses that expect their turnover to exceed £150,000 (excluding VAT) in the coming twelve months aren’t allowed to join the scheme.

Should you use it?

The answer is: it depends! You need to weigh up what you would be paying to HMRC using the normal scheme and how much you would pay under the FRS. Many would expect to pay no more in VAT using the FRS or even paying less. Given the benefits, however, some might prefer to pay a little more as the savings in time and hassle might outweigh the cost of using the scheme.

HMRC very kindly provide a ready reckoner to help you work out whether you could benefit from using the scheme.

The biggest difficulty?

This would probably be deciding which flat rate to use. There is a table of the flat rates and the broad business area in the ready reckoner, and additional guidance to help you work out which description to use. It is important to get this right as if HMRC think you have got it wrong and paid too little VAT they’ll want to assess for the underpaid tax. Alternatively, if you set it too high and pay too much VAT, you are losing out.

Discount for new VAT registrations

Businesses in the first year of VAT registration get a 1% reduction on the flat rate they apply. This covers only the first year of the business’s VAT registration. If you are entitled to the discount there are two things to remember:

1. Apply the lower rate until the end of the first year of the business’s VAT registration; and
2. Apply the full rate after the end of the business’s first year of VAT registration.

Got a question on this article or just want to make a comment? Please leave it in the comments section below. I’d love to hear from you.

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I’ve got some good news and some bad news.

First the good news: for VAT the time in which you can make a claim for underclaimed VAT has been increasing to four years since 1 April 2009. This means that until 1 April 2010 you can put in a claim for underclaimed for periods that ended after 31 March 2006. Up to 1 April 2009 the time limit was three years.

Now the bad news: this means that errors where you’ve underpaid VAT also have a four year window within which they have to be adjusted. This means that HMRC can also assess for errors made in the four year period too!

Now the even worse news: for direct tax, e.g. income tax, the time limit for claims is reduced to four years. If you want to make a claim for tax before 1 April 2006 you need to make it before 1 April 2010. The silver lining is, of course, that HMRC won’t be able to assess for back tax if they don’t do it before 1 April 2010!

Do seek help from a professional adviser if you need to make a claim and might be affected by these changes.

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1 January 2010 – increase in rate of VAT

The table below has been recalculated to show the rates at 17.5% for fuel scale charge.

Remember that you will have to apply the right rate for the period. Where your VAT period spans the change in rate you will need to apply the right rate: the 15% rate for the first part and 17.5% for the second part. There is a table on this site that sets out the same data below but calculated at 15%.

For periods starting after 30 April 2009

The fuel scale charge applies to all business cars which are used for private motoring. The following table sets out the fuel scale charges
for VAT periods commencing after 30 April 2009.

The amount listed under Scale Charge is the VAT inclusive amount. You need to subtract the VAT due to get the figure to include in Box 6 on your VAT Return.

For vehicles which do not have a CO2 emissions figure, you should identify the CO2 band based on engine size, as follows:

Whilst every effort has been made to ensure that the figures in the following tables is correct you should still check that the figures are correct.

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With the change in rate of VAT on 1 January 2010 the rates to be applied by those using the Flat Rate Scheme have changed, again! For information on how to apply the changes visit HMRC’s website.

The following table shows the percentage that businesses in the Flat Rate Scheme should use from 1 January 2010 in preparing their VAT returns.

(1) * “Labour-only building or construction services” means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are “general building or construction services”.

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In 2010 a new electronic VAT refund procedure will be introduced across the EU. It will replace the current paper system. Businesses established in the UK will submit their claims through the UK Government’s gateway. This should significantly simplify the procedure of claiming overseas VAT. Other measures have been taken to make it even simpler, for example, introduction of expenditure codes for the nine most commonly claimed expenses – full details are in the guidance issued by HMRC.

The VAT Notice 723A: Refunds of VAT in the European Community for EC and non-EC businesses available from the HMRC website provides further explanations and answers frequently asked questions. It also contains the draft UK secondary legislation.

UK businesses wishing to claim overseas VAT will have to register on the UK portal via the Government Gateway. The portal will be open for registration late in 2009. The basic details of VAT claims submitted through this portal will be verified by the UK, not by the Member State of Refund (MSR), so certificates of UK VAT status to support claims will no longer be necessary. The errors in claim completion will be identified and flagged, so the applicant could correct them and reduce the possibility of the claim being rejected.

Further enhancements of the claim submission system are planned for the future.

The guidance also touches the language-related issues. Luckily for the UK residents, many Member States have indicated that they are going to allow English to be used for free text fields.

The other important things to remember are as follows:

• Claims containing errors will still be forwarded to the MSR, but the MSR can decide to reject the claim.
• If a claim is refused in whole or in part, the decision by the MSR can be appealed.
• The time limit for submission has been extended from six months to nine months.
• The MSR will have four months to verify the claim, but this can be extended where they request further information from the claimant.
• There will be a maximum of five claims that can be submitted to each MSR per year.

HMRC have published guidance in VAT Notice 723A: Refunds of VAT in the European Community for EC and non-EC businesses containing details of how the new system works.

This article is the fifth in the series outlining the forthcoming changes in the VAT rules for 2010. We have covered the most important issues and welcome comments, questions and opinions on the subject. If you have anything to say on the matter, please post below.

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The rule changes announced for 1 January 2010 cover not only the place of supply, but also the time of supply. It means that the time at which VAT must be accounted for under the reverse charge will change on 1 January 2010. The changes will be introduced by secondary legislation later in the year.

This is being done to “harmonise the time of supply rules for reverse charge services throughout the EU” – in other words, to make rules applied to cross-border supplies of services by different Member States more consistent.

HMRC has made the following Place of Supply/Time of Supply guidance available on its website. Part 4 of the document answers several important (and probably frequently asked) questions regarding the forthcoming time of supply rule changes.

The time of supply changes will come into effect at the same time as other VAT Package changes on 1 January 2010, though some legislation is still in draft and consultations with business groups have been taking place to minimise additional burden on businesses that the new rules may involve. It is expected that the legislation will all be in place before Parliament rises for the Christmas recess.

The guidance explains in detail how the new rules will apply to single supplies of services and continuous supplies of services and how to define tax points in both cases. For example, with a single supply the tax point will be completion of the service, and for continuous supplies there will be a tax point at the end of each billing or payment period. The difference between single and continuous supplies of services is explained in detail. Other answered questions include:

• What supplies are affected?
• Why do the new rules cover all supplies subject to the reverse charge arrangements in the UK?
• How will I treat supplies that span 1 January 2010?
• What impact will these rules have on completion of UK EC Sales Lists?

and a few more.

We will be writing more articles on these topics over the coming weeks and months. For now, we recommend that you read the guidance available from HMRC. Whatever questions may arise (you’ll see that the guidance published by HMRC is not the easiest to understand), we welcome questions asked either in the form of comments posted to this blog or using the contact form.

Our next article in this series is scheduled for December, and we will continue to discuss and explain the new VAT rules, so you can greet the New Year fully prepared!

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1. Place of Supply: Change in Rules
2. New Place of Supply of Services rules from 1 January 2010
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Continuing the series of articles describing changes to the VAT rules announced for 2010 we will now cover the rule changes related to EC Sale List submissions. You should pay attention to these changes if you are receiving intra-EU supplies or services, as well as if you supply services or goods to businesses located in other EU Member States.

So, what are the main changes in this field?

First of all, currently ESLs are required only for B2B intra-EU supplies of goods. From 1 January 2010 they will also be required for supplies of services to which a reverse charge applies in the customer’s Member State. Other important rule that changes is the frequency of ESL submissions. Every Member State has several options to choose from.

In the UK ESLs relating to services can be submitted either quarterly or monthly – the choice is given entirely to business owners. With ESLs relating to goods the new rules are more complicated. The option of submitting ESLs quarterly will be available to businesses only if the value of the goods supplied to other Member States hasn’t exceeded £70,000 (excluding VAT) in any of the previous 4 quarters. Otherwise, they will be required to submit ESLs monthly. From 1 January 2012 this threshold will be reduced – halved, actually – making £35,000. The business will be allowed to revert to the quarterly submission option if the value of goods supplied to other EU member States has been below the threshold for five consecutive quarters.

If the supplies fall under the exceptions to the ‘general rules’ covered by (Article 194 of Council Directive 2006/112/EC) or if the recipient is not VAT registered, ESL submission is not required.

All business are free to choose to submit their ESLs monthly.

To learn more about these rule changes we recommend that you take a look at the ESL guidance and Revenue & Customs Brief 2/09.

Another important thing you need to keep in mind to stay on the safe side is that businesses that submit their ESLs on paper will have only 14 days from the end of the month to do so. Business that choose the electronic method will be given 21 days. The difference is explained by the fact that HMRC staff will need additional time to enter the data submitted on paper into the database. According to the ESL guidance available from the HMRC’s website in PDF, there are several methods of electronic submission of ESLs:

• The on-line form.
• Bulk upload of data using a Comma Separated Variable (CSV) or Extensible Mark up Language (XML) file.
• XML channel.
• Using UN-EDIFACT format.

Businesses can choose any of the four methods mentioned above, whichever suits their needs best – or the paper method.

Further changes to the rules are expected in the coming years. All these measures are part of the anti-fraud package adopted by EU Finance Ministers in February 2008. They are also expected to modernise and simplify the existing system and will take place between 1 January 2010 and 1 January 2015. Though all this period of time VATark is going to continue explaining the latest changes and answering related questions, so if you feel that any of the rule changes described in the article need further explanations, please comment below.

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2. Changes to Time of Supply Rules
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In the previous article we have covered the change in the VAT rate expected in 2010 and several issues that may arise in connection with it. But the VAT rate is just one of the several changes announced for 2010, and, perhaps, the easiest to deal with. There are others – and they are subtler and more complicated than the rate change. Among them there are changes to the place of supply rules.

Currently, the place of supply is where the supplier is established, both for B2B (business to business) and for B2C (business to customer) supplies. It will no longer be that simple in 2010. For B2C supplies the same general rule will apply, but for B2B supplies it will change. Such supplies will be taxed where the customer is established. Further changes to the rules are expected in January 2011, January 2013 and January 2015.

You will be affected by these changes if you:

• supply services to overseas businesses
• receive services from overseas businesses
• supply goods to other EC countries
• want to reclaim VAT incurred in another EC country

From 1 January, as stated on HMRC’s website, ”most services provided to business customers will be treated as supplied in the country where the business customer is established, and the business customer will account for VAT under the reverse charge mechanism”.

The important points about the reverse charge mechanism are these:

• It concerns you if you are a customer and receive services from a supplier established in a different country
• It applies if the service you receive is not covered by the basic rule for place of supply of services
• It also applies if the service is covered by European Community (EC) simplification, assuming you belong in the UK and the supplier belongs in another EU country
• For more information about the services the reverse charge applies to you might want to download the following PDF from HMRC’s website: VAT Notice 741

Also, remember that it’s essential to convert the value of services into sterling if any other currency was originally used to pay for them.

The documents available on the HMRC website also explain how to prove the business status of the customer. Normally a valid VAT number is sufficient evidence. If your customer is not yet VAT registered, alternative evidence may be used. It’s therefore advisable that you start collecting the VAT numbers of your overseas business customers right now to be ready by the time the new rules are introduced.

Additionally, customers who can’t provide sufficient evidence that they are in business should be treated as non-business customers, whereas customers involved with both business and non-business activities should be treated as business customers – but not if the supplies are received for a wholly private purpose.

Many other important and subtle issues are covered in detail in various documents and articles available from HMRC’s website. We suggest that you start reading this page on HMRC’s website and follow the links from there – this way you should quickly find everything that is important for your cross border VAT in 2010.

Please leave your comments and questions below, or use the contact form to ask a direct question.

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1. New Place of Supply of Services rules from 1 January 2010
2. Changes to Time of Supply Rules
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